10 Reasons Why Companies Outsource

For some reasons, outsourcing is becoming a controversial topic yet many businesses benefit from it. Here are the reasons why companies outsource.

To an average person, the word “outsourcing” conjures up images of rows of cubicles with telemarketers and tech support agents. And to a lesser degree, it is associated with the negative perception of jobs being lost.

Both of these are misconceptions that this list hopes to will enlighten you about what outsourcing is, why companies do it, and how it ultimately could mean good news for everyone.

To reduce overwhelming costs

The main reason that companies outsource offshore is to reduce cost.

Specifically, labor cost. Consider for a moment Australia’s minimum wage of of $606.40 per week, calculated on the basis of a week of 38 ordinary hours, or $15.96 per hour.

In the Philippines, the national minimum wage is P 409.00 per day.

At the exchange rate of 44 Philippine pesos for every Australian dollar, this means that a Filipino laborer earns $9.29 a day.

Whereas an average web developer in Australia could make around $ 7,000/month, his counterpart in the Philippines could only be making less than $1,000.00.

To ensure focus

If a company tries to do too many things, it loses focus, quality suffers and losses may occur. Outsourcing allows companies to focus on what they’re good at.

Print and document management (PDM); HR functions and finance and accounting are the top three jobs that Australian companies outsource offshore, with inbound and outbound calls (tech support, telemarketing).

Because these companies have shed off some of its “fat”, it now has more time and financial resources, it now allows these companies to either see things from a broader business perspective because the operational details are being assumed by others, or, it can provide laser-like focus on things such as product development and brand management.

To deepen its talent pool

While most of the areas being outsourced are back-end or low-level tasks tasks, over the last five years, several companies have become more confident in the capabilities of the online staff that they have begun to outsource even certain management-level positions.

Asia has a deep pool of highly-skilled, well-educated talent, with college educations and experience.

As a result, management positions being outsourced in 2005 went from zero to almost 40,000 in less than five years.

Allows jobs of relatively small duration or cost to be outsourced

Aside from being able to find talent from anywhere in the world, outsourcing also provides the flexibility of hiring and keeping people on board only for the duration of a specific project.

This means that if you need specialized jobs such as graphic design, website design or even the writing of content and designing of your company’s brochure, you don’t need to hire full-time staff.

Some of these projects will only take a month or even less to make, so your contracts are only limited to what your company needs at the moment.

Resources are not available internally

In relation to the previous point, the 21st-century entrepreneur must must strive for a balance between what his business needs and his business wants to have.

Having a full-time team for every company division or department working in house is no longer practical given the current climate of global competitiveness.

And sometimes, it’s not even the labor cost that’s at issue.

For certain jobs, especially in the IT field, there is a shortage of locally-available talent.

Free internal resources for other purposes

Outsourcing isn’t always about moving jobs abroad. When a company outsources certain tasks, it actually also provides them with the opportunity to expand the roles of in-house staff, who now have more time to focus on core activities then later return in serving the customer.

Accelerate re-engineering benefits

Outsourcing usually takes place during a period of transition for a company. The advantage of getting an experienced and reputable BPO company on board is that the nature of their business allows them to speed up a company’s re-engineering process.

Getting their outsource services in sync with a company’s day to day operations will probably be faster than having in-house staff retrained.

Minimize share risks

The global business climate is just like the weather. You can see patterns, you can prepare, but you can’t predict everything.

Changes come often and quickly and keeping up with changes requires flexibility.

Those who outsource offshore have the flexibility which allows them to free themselves from unnecessary legal and financial risks.

Cash infusion

A company’s equipment, facilities, proprietary software and licenses that are being used in operations all have value and can be sold to its offshore outsourcing services provider.

Make capital funds available

Outsourcing can improve cash flow. Because labor costs are lowered and resources become more focused on core business, it has a greater chance to become efficient and profitable. Wish expenditures and fixed costs reduced, operating margins are driven up and break even points are lowered.

Outsourcing is more complex than the average person makes it out to be. While it is being perceived by some as jobs being lost and sent to someone from another country, the truth is far more complex.

The key driver is the business owner’s need to reduce costs in order to stay competitive in the global market, but it also benefits many who want to start their own companies, allowing them to form their business teams at a fraction of the cost it would if hiring locally, and creating a culture of entrepreneurship for the 21st Century.

Would you consider outsourcing for your business?

Comments

This is so well organized and explained. Not directly relevant to me but I like to understand how the world works today - I'm totally mystified by all the changes. Looking forward to your future articles.

Actually, the culture has never been an issue; Filipinos are very "versatile" and our clients are admiring their professionalism.

As for opting for Australians or Americans over Filipinos, I would want to clarify that management is the fastest job being outsourced - growing by 300%. The objective of getting your business to work by hiring offshore is keeping a business competitive by cutting costs.

You can outsource management roles; no problem with that - Filipinos excel in management roles but you also have the option to keep these roles local because as your company grows, you would need more staff and you would consider local employees and of course you need people to manage them within your country.

In a nutshell, it depends on your business and it boils down to proper planning.

Nice article! I wonder to what extent there is a clash of cultures when you outsource management positions to leaders who might come from a very different culture but have to work with Australians (or Americans). Why do you say you opt for Australians or Americans over Filipinos? I am curious what your experience was.

Basically, the reasons revolve around financial matters but dig deeper & discover that there are more reasons beyond money such as providing employees and employers career growth by working with each other from both sides of the globe without leaving their families.

@john galt

I appreciate your constructive criticism.

Regarding outsourcing, I am on the front line of that industry and I speak and connect with business owners every day about the topic and about their options what outsourcing offers every employer in this global age. I could assure you that just because a job could be done by someone offshore or be outsourced don’t mean that every job will be outsourced.

Even for myself as an employer, I have the option to hire 100% offshore and to outsourcing everything, but, I do not, because there are some roles, like in management, I would rather have an American or an Australian do over a Filipino. I have tried both.

Many business owners who we speak with do their best to turn outsourcing into a workable solution. But, you could only make it work on the early stages of business. Once you need to depend and rely on someone over the long term, you do need local people in your country to do the job.

Now at my company, we make outsourcing a sustainable solution for our clients, but we advise them once they get bigger than 30 or 40 or 50 staff, they consider bringing those staff in an office or hire new management to manage the growing teams who have been outsourced.

Like in the industrial era where jobs in the agricultural sector were lost in the agricultural industry but were slowly replaced by opportunities in factories we are seeing this with outsourcing today.

There is a shifting of job roles but this doesn’t mean that all jobs in a country are lost. I actually think the opposite is happening with more jobs being created because outsourcing now allows the smaller business a chance to grow and as a result end up hiring people locally who they were not able to afford when they were starting out in the early stage of the businesses.

Even larger clients who use our offshore staffing solutions do so to get stronger on their bottom line, improve their ability to do the work they are trying to get things done simply and then hire locally once more.

So, will outsourcing take all jobs away from the USA, Australia, UK or any other country? No, but yes there will be a shifting or roles.

john galt
on 08/08/2012

This article mentions nothing on the negative impacts of unfettered outsourcing. Outsouring to decrease labor costs can actually have a negative impact on a company, and can have a negative impact on the economy.

It's funny. I'm all about the profit motive - we need to make money to remain in business. That is why I dont see the logic at all in this race to the bottom in wages, particularly when the very communities and people who buy a majority of goods and services need a decent wage to afford to buy these products.

Simply put, pay your employees a liveable wage and maybe they will take the disposable income in their pockets and spend it on goods and services - inevitable leading back to more profits for companies based here.

There is more to business continutity than how to achieve the quickest turnaround this quarter. There is a whole economic and social part that this article fails to even mention, glossing over in ignorance "the business sense of outsourcing"